Treasury Posts New Term Sheet for Non-Publicly Traded Financial Institutions
Renee E. Becker
On November 17, 2008, the United States Treasury Department (the “Treasury”) posted an additional term sheet (the “Non-Public Company Term Sheet”) and a “Private Bank Program Q&A” for the participation of non-publicly traded financial institutions in the Troubled Asset Relief Program – Capital Purchase Program (the “Capital Purchase Program”). The Capital Purchase Program, developed in conjunction with the Emergency Economic Stabilization Act (“EESA”) to assist financial institutions and increase lending to United States businesses and consumers, was previously geared toward publicly traded financial institutions. The term sheet for publicly traded financial institutions (the “Public Company Term Sheet”) was posted on the Treasury’s website on October 14, 2008.
What Does “Publicly Traded” Mean?
Consistent with previous guidance issued by the Treasury, the Non-Public Company Term Sheet defines a “publicly traded” company as a company (1) whose securities are traded on a national securities exchange and (2) required to file, under the federal securities laws, periodic reports such as the annual (Form 10-K) and quarterly (Form 10-Q) reports with either the Securities and Exchange Commission (“SEC”) or its primary federal bank regulator. A company may be required to file periodic reports by virtue of having securities registered under Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which applies to all companies that are traded on an exchange or that have $10 million in assets and 500 shareholders of record, or pursuant to Section 15(d) of the Exchange Act, which requires companies that have filed a registration statement under the Securities Act of 1933, as amended (the “Securities Act”), and have 300 or more securityholders of record of the registered class, to file reports required under Section 13 of the Exchange Act, e.g., periodic reports.
Which Non-Public Financial Institutions Can Now Participate in the Capital Purchase Program?
The definition of a qualified financial institution (“QFI”) remains substantially the same, except that it applies to non-publicly traded financial institutions. A non-publicly traded QFI means, generally, any (i) United States bank or savings association organized in a stock form that is neither publicly traded nor controlled by a bank holding company or savings and loan holding company, (ii) top-tier bank holding company or savings and loan holding company that engages solely or predominately in activities permissible for financial holding companies under relevant law, that in either case is not publicly traded, and (iii) United States bank or savings association that is not publicly traded and is controlled by a savings and loan holding company that is not publicly traded and does not engage solely or predominately in activities that are permitted for financial holding companies under relevant law. The Non-Public Company Term Sheet does not apply to S-Corporations (corporations that have made a valid election to be taxed under Subchapter S of the United States Internal Revenue Code), mutual depository institutions (entities organized in mutual form), and any financial institution controlled by a foreign bank or company.
What is the Deadline for Non-Publicly Traded QFIs to Apply for the Capital Purchase Program?
Applications for non-publicly traded QFIs must be submitted to the appropriate federal banking agency for the QFI by 5 p.m. on December 8, 2008.
What Are the Similarities Between This Newly Issued Non-Public Company Term Sheet and the Public Company Term Sheet Issued on October 14, 2008?
The following terms of the Capital Purchase Program are the same for both publicly traded QFIs and non-publicly traded QFIs:
What Are the Significant Differences Between the New Non-Public Company Term Sheet and the Public Company Term Sheet?
The Public Company Term Sheet and the Non-Public Company Term Sheet differ in the following areas:
Do the Shelf Registration Requirements Apply to California Banks Chartered by the California Commissioner of the Department of Financial Institutions (“DFI”)?
It should be noted that the Non-Public Company Term Sheet assumes that offers and sales of the non-publicly traded QFI’s securities must comply with the applicable provisions of the Securities Act, and the rules and regulations thereunder. However, offers and sales of California state-chartered bank securities are exempt from the requirements of the Securities Act under Section 3(a)(2). Instead, offers and sales of securities by California state-chartered banks are subject to the permit requirements of the California Financial Code, as administered by the DFI, which do not allow sales of securities under a shelf registration statement and do not cover secondary sales of securities by shareholders whether or not affiliates of the issuer. California state-chartered banks cannot strictly comply with the provisions of the Non-Public Company Term Sheet requiring shelf registration. The provisions of any final agreements entered into with the Treasury will need to be modified to address this issue.
What if the Financial Institution Seeking to Participate in the Capital Purchase Program is currently unable to pay dividends?
The provisions of any final agreements entered into by California state-chartered banks with the Treasury, requiring the payment of dividends on the Preferred Shares, may need to be modified to reflect the limitations on the payment of dividends set forth in the California Financial Code. In many cases payment of each dividend on the Preferred may be subject to the prior approval of the DFI.
How do Non-Publicly Traded QFIs Apply for the Capital Purchase Program?
Applicants should complete the application and follow the procedures that can be found on the applicable federal banking agency website or on the Treasury website here. The actions that should be taken following submission of the application are the subject of our November 14, 2008, BankingLaw@manatt newsletter.
Renee E. Becker Ms. Becker represents public and private companies, particularly financial institutions, in connection with mergers and acquisitions, public securities offerings, and corporate governance matters. Additionally, she advises public companies on various matters relating to federal securities law compliance and reporting under the Securities Act of 1933, the Securities Exchange Act of 1934, and the Sarbanes-Oxley Act of 2002, as well as state securities laws. Ms. Becker has represented public company acquirers in a number of fairness hearings before the California Department of Corporations.
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